Tax Minimization in Romania

Tax Minimization in Romania

Updated on Wednesday 04th November 2020

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How-Gifts-and-Bonuses-are-Taxed-for-Companies-in-Romania.jpgRomania is one of the attractive European countries for doing business due to the low income tax and corporate tax (applied on profit) rates which are unique (16 percent). When comparing it to other European countries, foreign investors may find that they have an interesting opportunity for developing a business in Romania. The tax minimization options available in Romania can be entirely explained by one of our Romanian accountants.

What is tax optimization?

The tax minimization method refers to any activity carried out by a company in Romania within the limits of the legislation, with the purpose of reducing the fiscal obligations. Here are some examples:
  1. A proper recovery of tax receivables or avoidance of tax receivables allowing to obtain low costs of financing tax responsibilities.
  2. The exemption, reduction, delay of tax obligations.
  3. Fructification of tax legislation to obtain the maximum tax deductions and minimize the conditions in which tax deductions are not accepted.
  4. Carrying out taxable operations in the fields where the level of taxation, costs, and fiscal risks are the lowest possible.
  5. The possibility to recover tax losses from subsequent tax results.

Tax system in Romania

The Romanian tax system applies to residents as well as to foreigners in Romania. Foreigners are liable to pay income tax, but only on income sourced in Romania, such as salary received from a foreign employer for the work carried in Romania, income paid by a Romanian company or individual that is employment related, or income from a source on the Romanian territory. When it comes to expatriates, Romania does not have a special income tax regime applied to them, but if double tax treaties exist, then they can overrule domestic legislation.

How to pay fewer taxes in Romania

An easy way to pay fewer taxes in Romania is to open a holding company. Since 2014, Romania has fiscal laws governing the holding companies, but it is a rather simple system. A holding company does not need to pay income tax on capital gains or dividends. In addition, liquidation proceeds obtained from the sale of the holding company’s shares in subsidiaries are also not subject to income tax. This fiscal relaxation can draw the attention to foreign investors, but also to Romanian investors that up until now kept looking for new jurisdictions where to open their business, countries such as Cyprus or Holland. These new fiscal measures are specific for strategic investments that have development as the main purpose. Romania has chosen to impose holding at least 10% of shares in a subsidiary from which they receive dividends and set a minimum holding period of one year.

Taxation of subsidiaries in Romania

With the new regime, Romanian subsidiary companies that pay dividends to shareholders or to associates who are Romanian legal persons, do not calculate and do not withhold taxes on dividends for the distributed dividends, if the dividend recipient holds, at the payment date, less than 10% of the units’ participation of other legal entities for a period of one year. From this point of view, equity above 10% in Romanian firms, held for a minimum of one year, benefits from tax exemption on dividends and tax, while less than 10% stakes are double taxed: the 16% dividend tax, withholding of subsidiary, and the income tax of 16% from the mother company. This is clearly a favorable tax treatment for minority stakes.
Keeping accounting in Romania is a rather difficult process, as such, we advise you to hire an Romanian accounting firm in order to help you with all the financial aspects. Our experienced Romanian accountants will provide assistance for all the fiscal procedures, including audit in Romania.

What other tax minimization methods are available in Romania?

Taxpayers in Romania can benefit from other tax minimization tools, tailored to the business direction and overseen by one of our Romanian accountants:
  • A fiscal optimization through the VAT.
  • Offshore companies can be established in specific countries.
  • Particular tax categories.
Not only the value of the taxes paid in a company is important, but also the fiscal competitiveness, the choice of accessible fiscal solutions to the clients or other third parties implicated directly in the process.
Our Romanian accountants recommend the use of tax minimization solutions at any time in a business, right from the beginning, during the current activities, or at the time the business is transferred. If you would like to know more about the tax minimization option, please feel free to address your inquiries to our team.

What you cannot consider tax minimization options in Romania

Any activity carried outside the legislation with the purpose of avoiding the payment of taxation is not permitted in Romania. Therefore, the following matters do not apply as tax minimization solutions and are against the laws in Romania:
  1. Making transactions without specific documents and reports.
  2. Hiding the tax base and taxable persons.
  3. The abusive interpretation of tax legislation only in favor of the taxpayer in Romania.
  4. The lack of transparency and/or reduced or partial reporting of the financial transactions in a firm that is subject to transaction, tax base, etc.
  5. Obtaining false credits, refunds of tax receivables, and tax exemptions.
It is important to know the tax legislation from the beginning and create a company with respect to the applicable laws in Romania. An accounting firm is extremely useful to foreign entrepreneurs who want to develop their activities in this country and who need to know the base of taxation. You can discuss all the terms with one of our accounting specialists in Romania.

New tax policies in Romania

The government in Romania is interested in changing the tax policies and to improve the tax system as much as possible, in order to collect taxes and grow the GDP (Gross Domestic Product). Here are some examples of tax measures that address companies in Romania:
  • The simplification of rules and regulations related to taxation, in order to ease compliance and administration. 
  • The elimination of distortions and gaps from the tax system in order to offer to taxpayers the possibility to minimize the tax burden, in complete fairness.
  • Streamlining the way in which the system guarantees a correct distribution of the tax burden.
These are a few of the fiscal policies destined for company owners and taxpayers in Romania. For a better understanding of the fiscal system in Romania, do not hesitate to talk to our Romanian accountants.

Romania, an interesting investment destination

In 2014, Romania has entered the international fiscal market with the new holding regime, as such United States and United Kingdom had shown a great deal of interest due to this change. As such, Romania was placed on the investors' map. The business environment in Romania continues to change and improve, allowing foreign entreprenuers to easily opening companies in this country and benefit from a wide range of encouragements, business solutions and many more. Here are some facts and figures about the economy and business in Romania:
  1. Around USD 97 billion was the total FDI stock for Romania in 2019.
  2. Germany, Italy, Austria, and Cyprus are the main investors of Romania.
  3. According to the 2020 Doing Business report issued by the World Bank, Romania ranks 55th out of 190 economies in the world.
  4. Around USD 6 billion was the total value of the greenfield investments in Romania in 2019.
You can contact our accounting firm in Romania if you need help from our specialists in tax minimization matters.